What is Negative Gearing?

Negative gearing involves borrowing money to invest in a property which will not be cash flow positive, in that the income gained from renting the property will not cover the expenses involved in maintaining it. The expense can then be deducted from current income taxes.

Negative gearing only becomes a profitable venture at the time when the property is sold, with the prerequisite that the property appreciates in value. It is also important that interest rates remain low.

To make this strategy work, investors must have the financial stability required to find the monthly loss out of their own pockets.

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